Shanghai loses top spot as preferred property investment destination

A man walks through a demolition site in downtown Shanghai, December 1, 2010. Photo: Reuters

Shanghai in China dropped to second place in the list of most favorable destinations for property investments in Asia, said a survey on Monday.

Singapore, with its strong economic growth, won the top place for real estate investments in Asia, an annual survey jointly published by Urban Land Institute and PricewaterhouseCoopers showed.

Shanghai, which topped the list in the previous annual survey, lost its position as investors became wary of the sharp increases in property prices in the Chinese city.

While Mumbai and Hong Kong occupied the third and fourth places respectively in the list, Osaka in Japan, and Manila in Philippines are the least favorable spots for property investments.

Property prices in China are expected to decrease by about 20 percent in 2011 and the market is likely to readjust in March or April next year, China Daily said in November, quoting a report by Renmin University of China. But, the report ruled out hard landing of Chinese property market.

Property developers are expected to face a sharp decline in access to capital in the first quarter next year. Besides, the situation will be worsened by tighter financing, loan repayments and severe restrictions on property buyers, according to Liu Yuanchun, deputy head of the university's School of Economics.

Property prices in China rose 8.6 percent in October year-on-year, compared with a 9.1 percent rise in September, according to the National Bureau of Statistics (NBS).

Chinese property prices growth slowed in October for a sixth consecutive month after peaking at 12.8 percent in April. The Chinese government stepped up controls to curb the property price rises in April.

However, home prices rose 0.2 percent in October, highlighting the need for further government controls to crack down on speculation and avert asset bubbles.

The Chinese government is planning to introduce a property tax to discourage property speculation and contain surge in home prices. The government already suspended mortgage loans for third home purchases and raised down payments for first time buyers.

“It was possible that Asian governments would unveil more policies to cool their markets, but the strength of the economies would be the fundamental driver for investment decisions, especially in the commercial real estate sector,” Reuters quoted Stephen Blank, senior fellow at the Urban Land Institute, as saying on Monday.

In addition, foreign citizens are permitted to buy a single home for their own personal use and foreign institutions can only buy commercial property in the same city where they are registered, according to a notice released earlier this month by the Ministry of Housing and Urban-Rural Development and the State Administration of Foreign Exchange.

There is a great feeling of uncertainty because it is very hard to know what the potential changes in regulations are going to be, Blank said. Regulations come and go. In Asia, governments turn things on and turn things off very quickly.

The People's Bank of China raised interest rates by 0.25 percent in October for the first time in three years to tame inflation and rising home prices. The central bank also increased banks' reserve requirements five times this year.

However, property investment increased 37 percent in October on annual basis, taking the total investment in the first 10 months to 3.81 trillion yuan, up 36.5 percent compared with the same period last year.

Chinese consumer confidence fell in the third quarter, recording a drop for the first time in six quarters, but some 62 percent of consumers surveyed expected housing prices to rise continuously over the next 12 months.

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